We spoke with a private truck broker about TL demand, capacity, and pricing trends. This broker saw a 30% surge in volumes in late March and that level of volume has remained consistent throughout May as carriers look to fill their network with brokered freight. Our contact saw very loose TL capacity through April and early May but has seen capacity tighten throughout the end of May. Regionally, this broker has seen capacity tighten the most in the Southeast, Texas and L.A. In addition, gross margins have improved nicely in 2Q and are now back above 15% after compressing sharply in March. But if TL capacity continues to tighten, it could put some downward pressure on gross margins again. From a demand standpoint, our contact is seeing strength from retailers rebuilding inventories as states re-open, and he expects demand to improve further as manufacturing activity begins to pick up more meaningfully.

We’ve started getting more questions about the impact of ESG on transports. While ESG rankings can vary greatly across providers, the Rails and Forwarders generally have the highest ESG ratings across transports, while Truckers generally lag and UPS/FDX fall somewhere in the middle. Our note today focuses on the rails, which we view as 3-pronged winners from an ESG perspective including positive implications with ESG investors, customers (shippers), and regulators.

ARCB, ODFL and SAIA provided mid-quarter updates over the past 2 days, with each seeing improved trends in May relative to April. Revenue/day trends relatively improved for ARCB and ODFL by 2%-3% in May vs. April, while tonnage trends at SAIA improved 400bp in May vs. April. We’re raising our EPS estimates for SAIA and ODFL and lowering our 2Q EPS for ARCB, and we’re now above 2Q Cons. for all 3 carriers.

Our Accounting & Tax Policy team published a report today (06/02/20) discussing the potential for corporate tax reform with the U.S. government’s budget deficit at a 75+ year high. We expect tax reform and the upcoming presidential election to garner increased attention in the months ahead, and our note today discusses potential winners and losers among the transports. We believe the U.S. rails face the most binary outcome with potential risk from higher tax rates if Biden wins and potential regulatory and labor benefits if Trump wins.

Our WR Transport Index rebounded another 10% in May, outperforming the S&P 500 by 530bp and the XLI by 440bp. Our Transport index has now bounced back 39% off the bottom in mid-March and is now down just 3% YTD. The group is now outperforming the S&P 500 modestly by 270bp YTD and more materially outperforming XLI by 1,400bp.

Our WR Transport Index rallied another 5.2% last week, outperforming the 3.0% rise in the S&P 500 but slightly underperforming the 6.0% rise in the XLI. The Integrators (+8%), LTLs (+6.5%) and TLs (+6%) performed relatively best last week, while the Rails (+3%) relatively lagged. Our Transport index is now down just 2% YTD, outperforming the 6% drop in the S&P 500 and the 17% decline in the XLI. And since the market bottom on 3/23, our Transport index has rallied 39%, with the LTLs up more than 50% and the TLs up 47% since then.

Pasted below, please find our Friday Freight note. We distribute this product via email each Friday mid-day, so clients have some freight reading material to make their weekends truly worthwhile! Your feedback is always appreciated if you have any suggestions.

Amidst a massive mix shift to B2C deliveries, UPS announced today (5/28/20) that it will implement peak surcharges of $0.30/package effective May 31 on residential deliveries. This surcharge applies to shippers that exceed their avg. weekly February volumes by 25K packages (~3.6K/day), so it’s targeted at UPS’s largest customers. UPS also announced an oversized surcharge of $31.45/package, although this likely impacts a very small percentage of UPS’s total volumes.

Following our review of proxy filings for the Rails last month (click here), our note today summarizes key drivers of short-term and long-term executive compensation across the rest of the Transports. We also highlight key changes in compensation metrics compared with last year. Open the note for a summary of comp for each company.